Australian (ASX) Stock Market Forum

Efficient Market Theory from a physicists view

Jump to new
tech/a

tech/a

No Ordinary Duck
Joined
14 October 2004
Posts
20,400
Reactions
6,317
Son is doing his Doctorate in Photonics at Adelaide Uni.

Being a Maths nut and knowing my involvement in trading he sent me this.

I'll be going along so will let you know if there is anything interesting.

--------------------------------------------------------------------------

Thought you'd be ridiculously interested in this talk that Derek Leinweber is giving at uni soon:

___________________________________________________________
1pm, Tuesday 12th September, Room 121 (Seminar Room), Physics Building

Speaker:
Assoc. Professor Derek Leinweber

Title:
Econophysics of Self-Organized Criticality

Abstract:
The Stock Market is a complex self-interacting system, characterized by intermittent behaviour. Periods of high activity alternate with periods of relative calm. In this seminar, we will explore the possibility that the market is in a self-organized critical (SOC) state. The best known example of a SOC system is the sand pile, characterized by quiescent periods followed by avalanches. In order to separate high activity periods in the market, related to the avalanches found in sandpile models, from quiescent periods, a wavelet transform method is introduced. The concepts behind the wavelet transform will be described. Finally, a statistical analysis of the filtered data will reveal the extent to which the Stock Market is in a SOC state.
____________________________________________________________


Im particularly interested in the statistical analysis.

How it was derived and its extent.
The wavelet Idiea reeks of Elliot,gann etc---mind you I doubt he has even heard of either.
 
Re: Efficient Market Theory from a physists veiw.

Sounds interesting tech.


Finally, a statistical analysis of the filtered data will reveal the extent to which the Stock Market is in a SOC state.
Click to expand...

That's the part that caught my attention. Will be interested to hear what conclusions they come to.
 
Re: Efficient Market Theory from a physists veiw.

That's one heck of a thread title for a Beginners' forum :eek:

Do you know what data the physists are looking at? I guess grains of sand are more complex than miniature spheres but the differences between them must surely be a lot less than the differences between companies. F'rinstance, does the self organisation apply to P/E, prices, volumes, price/cap....

Just curious.

Ghoti (the infinitely distractable)
 
Have no idea I'll let you know when I know.

Good thing I have a physicist of my own in the family to decipher that which I'll have no idea about.
 
The wavelet Idiea reeks of Elliot,gann etc---mind you I doubt he has even heard of either.
Click to expand...


Way way way of the mark.

Econophysics.
The application of Physics to the study of the markets.In particular in this study Indexes.The DJIA,the ASX and others.

Briefly in this lecture It was shown that rather than being random in nature the movement of the indexes can and is proven mathamatically to be anything but chaos.

I am getting the website where the whole lecture is in PDF format for those who are interested. Those with a mathamatical bent will also be able to study the formulas used in the study. Mind you youd have to be atleast 3rd year Uni level.---Above me but I could follow it.

Very basically,it can be shown that the market has definable areas where after the noise is removed,will go from lack luster sideways randomness to
a sudden break in one or other direction.

Best parralled with the example of an hr glass of RICE.
The rice falls to a pile which is build slowly as the rice falls on top of the pile.This is stored as energy within the pile until the pile slides in an avalanche. So to the markets. Drivers in the markets are not RANDOM and as such build within an index to the point of an avalanche or Economic pressure valve release reflected in price movement within the index.
The same phenomonon has been observed studied and equated within Stocks.

This was a singular 1 hr lecture and for me created more questions than answers,Im in the position to be able to contact the author and discuss it further. There is a whole new area of Physics of which there are a few graduates now working in very highly paid positions researching for investment banks. As for practical use in trading for you and I,models could be designed for use however you would need a PHD in Maths to actually understand how to formulate an answer.
Eventually Im sure there will be software which will allow inputs that can answer many questions in the Econophysics arena.

Ill post the link to the PDF tommorow when I get it.
 
I've been working on statistical range and time analysis for a few years now.

most of my systems are based on statistical patterns and re-occuring patterns on statistical ranges. It's not all hyperbol, it's hard coded prop systems.

I mentioned back in 2003 I thought the markets as an orgranised entity to act efficently and not something that is random. The only thing random is you and I, they way we trade.

And in my opinion, there is no 'noise' in the market or chaos theory, the only reason people make those comments is that their own theories to market action doesn't conform to their methodolgy, so they talk about noise in the market, classic elliot wave traders fit that bit.

just my thoughts.

Frank Dilernia
 
Frank

Prof Leinweber classifies noise as price action which isnt out of the norm.
This can be filtered and what is left are pressure build up areas.

Ive private mailed you.
 
Top